anti-mankiw

anti-mankiw links - or, the defense of manufactures

2012-02-17T17:09:00.000-05:00

The other day Professor Mankiw linked to a piece by Christina Romer in the New York Times on why manufacturing should not be subsidized by government policy.

On one hand we can see why this might be a smart policy: manufacturing is past us, isn't it? The U.S. has increasingly moved into smarter, faster sectors of growth like technology, finance, and higher education. The last thing we would need, argue economists such as Romer and Mankiw, is a return to 60s-era economics.

On the other hand, as Jeff Madrick observes in the NewDeal 2.0 blog, manufacturing is only seen as dead because we don't necessarily know what a smarter, leaner, and more efficient manufacturing sector might look like. What is the contradiction between smart technology and good manufacturing jobs? Once upon a time, there wasn't any such clash. But as competition for cheap labor and a variety of factors overwhelmed businesses in the 1970s, "low road" policies were inevitably taken which compromised quality for productivity and low wages. Finance, Madrick notes, took manufacturing's place as the key driver of growth -- and what has that gotten us in the last 40 years? High inequality and relatively stagnant growth and living standards.

Manufacturing -- potentially with a focus on green technologies at the frontier of certain frontiers of economics growth -- can itself become a hotbed of innovation. As Madrick notes, "Isn’t [manufacturing] where the scientists and engineers are? Don’t we learn and innovate by doing? One commentator recently said that those innovations are exploited by others, so it doesn’t matter. Really? Then maybe we should stop promoting R&D altogether." Research and development is key to a vibrant economy. There is no reason to halt our attempts at strengthening them.

A similar point regarding the potential dynamism and value added of the manufacturing sector can be found in the debate which took place in the Economist last summer between Ha-Joon Chang and Jagdish Bhagwati over this same issue. (Chang won the debate). Chang makes an interesting point in his rebuttal to Bhagwati's scepticism about "manufacturing fetishism" which we will end on, here:

Take the case of the Netherlands. Unbeknown to most people, it is world's third largest agricultural exporter, despite having little land (it has the world's fifth highest population density). This has been possible because the Dutch have "industrialised" agriculture by, for example, deploying hydroponic agriculture (growing plants in water) that uses computer-controlled feeding of high-quality chemicals—something that would not have been possible if the Netherlands did not have some of the world's most advanced chemical and electronics industries. In contrast, despite being the world's second most high-tech exporter (measured by the share of high-tech products in manufactured exports), the Philippines has only $2,000 per person income because it makes those products with other people's technologies.

Overall, we at Anti-Mankiw definitely think that the promotion of manufacturing could be an excellent way to revitalize the economy. How the government (or other branches of the state) does so is a different point -- but let's not relegate such an important source of a country's material wealth to the trashbin too quickly!

Branching out: Anti-Mankiw on Twitter and Facebook

2012-02-12T22:59:00.002-05:00

If you have a Twitter account, Facebook, or both, be sure to head on over and "follow" or "like" us to receive updates as well as to check out news and blog articles that we're reading!

http://www.facebook.com/pages/Anti-Mankiw/218928821535584

https://twitter.com/#!/AntiMankiw

keeping your head above water: anti-mankiw links

2012-02-01T17:34:00.001-05:00


If someone is being "overpaid" here, it surely isn't workers

There are multiple things wrong with Professor Mankiw's recent post about comparing public and private sector employees by compensation.

First of all, the title of the post, "Are federal government workers overpaid?" is misleading. We usually say that someone is overpaid when they are contributing less than they are being compensated. But the CBO report is examining compensation differentials, which is a different issue. The problem is complicated by the fact that public sector workers are engaged in activities (such as education or security) which have clear positive externalities on society, so it's even more difficult to talk about being over or underpaid. (Are the participants in the securitization of bad loans over or underpaid?) It's clear what Mankiw is actually trying to accomplish in his post, and we at Anti-Mankiw can assure you that it has nothing to do with accurately conveying economic research.

Second of all, the report is only for workers in the federal government. In this excellent report by John Schmitt at the Center for Economic Policy Research it was found that state and local government employees are actually paid less than their private sector counterparts, after controlling for observable characteristics (similar to the methodology in the CBO report).

Finally, if a dynamic analysis were performed (i.e., examining the trend of wages in each sector over the last 30 to 40 years), readers would quickly realize that there are more pressing issues at play here. The most important of which may be the fact that wages for both public and private employees have been stagnating since the 1970s. Sure, public employees may have been paid more (according to the study from which the above graph is pulled, however, even that is a contested issue), but the story is more like: private sector wages are falling behind as public sector wages struggle to keep above water. Comparing with the elite 1% over the same 30, 40 year period, you see the drastic explosion of inequality that is the main subject of public debate today. In short, Mankiw is really doing a disservice to the more pressing macroeconomic issues by choosing to focus on whether one sector is more compensated than the other.

Here is another, similar report on this issue ("Public and Private Sector Workers Are in This Together") which focuses on college graduates: http://vox-nova.com/2011/03/17/public-and-private-sector-workers-are-in-this-together/.

Hardly a rosy picture -- for either public or private sector workers. Someone definitely seems to be overpaid here, but it's not workers!

An Obsession with Pigouvian Taxation ?

2012-01-14T10:35:00.056-05:00

Mankiw is perhaps the most well-known supporter of Pigouvian taxation on retail gasoline (also known as a carbon tax). As a review, recall that Pigouvian taxes are taxes enacted to solve for potential negative externalities in a market. Gasoline consumption leads to more carbon emissions which leads to pollution, which is the negative externality. This is a simple problem to solve if we just get a handful of smart economists to measure the societal cost/value of the externalities associated with gasoline, slap a tax on the 'bad' stuff to cover that cost, and voila: not only would the government increase it's tax revenue, but more importantly it would incentivize individuals to use less gasoline, thereby polluting less.

Pigouvian taxes have been proposed for all sorts of things, and some have been enacted in states while others remain largely a theoretical possibility only: tax car crashes, tax irresponsible borrowing, tax fatty foods, tax alcohol and (Mankiw's most recent object of support), a tax on cigarettes. There is evidence that these taxes do indeed create some incentives to 'improve' behavior. Nevertheless, many mainstream economists are so focused on Pigouvian taxation that it seems they have simply altered their message that "markets are generally good at what they do," to tack on: "... and where they aren't, we can easily make them work properly by either taxation or subsidies."

The focus on Pigouvian taxation, as particularly espoused by New Keynesian economists, may in fact divert attention away from market problems other than simple cases of measurable externalities. After all, not everything can be solved with taxation policies. Issues of broken institutions - particularly in the realm of education for example (see our previous post here) cannot be solved by simply slapping a tax on the behavior (in this case, institutions which do not grant the kind of "equality of opportunity" which they are supposed to in a democratic society). Issues of institutional fairness, corporate cronyism, socio-economic mobility and opportunity, and other more structural issues, are not likely to be easily solved by imposing a tax to try to punish the behavior. Finally, issues of unbalanced and asymmetric information in many markets (including credit markets) are not going to be easily solved with simple taxation.

In cases where Pigouvian taxation may be appropriate, there are further concerns with implementation. For example, there may be additional bureaucracy that comes with the new source of tax revenue. As technologies change and societal costs change, so too would the taxation policies need to be updated. Would we trust congress to be dynamic enough to change these rates accordingly. And if not, what sorts of negative effects on private activity might that cause? And even if our government were to support pigouvian taxation long-term, does this mean we could or should do away with certain regulations to maintain 'optimal' performance?

Additionally, it is not an easy thing to measure the societal costs of specific behavior that may contribute to pollution, or poor health, and so on. Assumptions are often made in coming up with a calculation of 'optimal' Pigouvian taxation - assumptions that may be wrong, or right only in present circumstances. You simply can't take a message like this to a politician and expect them to enact legislation based on it:

Despite all the uncertainties in the quantification of externalities [from waste disposal], this study has pointed out that preliminary estimates of external costs and benefits can be established. Such estimates cannot be presented as exact values, but they can be used as decision support and as an instrument to explain the trade-offs that are implicitly made in political decisions.

Coase (of Coase's theorem) pointed out that many externalities are reciprocal in nature: i.e. a polluter causes harm to those in a given area through it's actions, but those in a given area cause harm by forcing (or making it costly for) the polluter to change their actions as opposed to, for example, leaving the area. Some economists might argue that he was simplifying the issue, but even so the solution of what is 'optimal' then becomes even more complicated:

Nevertheless, there are grey areas and situations change. Thus, it may be desirable to have a system of bilateral taxation

Finally, at the end of the day, there is a political component to deciding the merits of pigouvian taxation. Economists often discount politics as something outside their purview (despite their own internal biases) but all the studies in the world cannot convince politicians who may have an ideological disagreement with the government picking and choosing what behaviors are 'good' and what behaviors are 'bad'.

So, when taking consideration of measurement problems associated with externalities (and changes in a measured externality over time), political barriers, and ideological barriers to pigouvian policies, it becomes less clear how useful such policies can be the real world. Pigouvian taxation, at the end of the day, certainly has its place. But one hopes that that place is not a grand pedestal that outshines all other solutions to the problems of the day.

an A for ideology, an F for technique

2011-12-18T18:00:00.000-05:00

In this article Greg Mankiw describes the argument behind a New York Times opinion piece written by Yoram Bauman, of "10 Principles of Economics, Translated" fame. The thrust of Bauman's thesis is that economics majors, by drilling ideas about incentives, private property, and self-interest into their heads for their classes, are thereby trained to be more selfish. It is supported, supposedly, by evidence showing how the economics majors were less likely to contribute to two charities presented to them when registering for classes.

Greg Mankiw doubts this implication of Bauman's findings. Mankiw basically takes issue with the following quote from Bauman's article:

You may question whether these groups actually serve the common good, but that’s mostly beside the point. Regardless of the groups’ actual social value, a purely self-interested individual would choose to free-ride rather than contribute; after all, a single $3 donation is not going to make a noticeable difference in tuition rates.

Mankiw, in criticizing this passage, makes a fair point: the supposedly positive externalities of any public good do need to be carefully examined and analyzed, even for small values of contribution, and someone with a social science background, particularly economics, may be well-equipped to do so. They might be less willing to dole out cash to a random charity, but their education is put to use in other ways that are beneficial to society.

While Mankiw may have a point, we at Anti-Mankiw strongly disagree that Bauman's essential claim that economics is ideological evaporates in the face of Mankiw's criticism. In fact, published studies have been done on surveys of students who have successfully completed an introductory course to economics in which the mainstream view is presented without any critical perspective, and these studies offer an interesting take on how ideology matters in the classroom.

The findings? The majority of students 6-12 months after taking such a course recall most quickly the normative aspects of the course but are relatively less able to solve simple problems related to these ideas (to see how they might work or not work in practice). Ideas like "taxes are bad for efficiency, though not for equity", and "prices not set by the free market lead to welfare losses and are therefore undesirable" are common, but give them a question to solve on calculating consumer surplus, for example, and they cannot deliver. These are consistent with our own experiences in teaching introductory courses offering a mainstream view, and indeed, on a certain level makes sense: most cases, you may just get the main point of an argument and not necessarily the details behind the argument. But nevertheless, it's presented as an argument, and therefore not of course the only perspective!

[See Bartlett, Ferber, and Green's "Political Orientation and the Decision to Major in Economics" in International Review of Economic Education; and Faravelli's "How Context Matters" in Journal of Public Economics for two resources. These ideas were also reflected on based on a correspondent's current dissertation research which we are not allowed to cite openly.]

The lesson learned? That market-centric views and market-centric efficiency criteria are at the center of any policy evaluation of a student, leaving no room to discuss how efficiency is not a scientific concept. (See this article by Rick Wolff, entitled, "Whose Efficiency?" which does a great job of breaking down the different models. Duncan Kennedy and Frank Michelman also have a nice piece as well entitled "Are Property and Contract Efficient?".) Second, it is highly questionable whether an intro course "enlightens" the student in the way Mankiw believes it does. Admittedly, part of the problem here is with education itself -- how we train our students and so on -- but Mankiw, writer of the currently most successful textbook, is therefore part of the problem, not the solution.

It's a short step from this final point to the idea that a better economics textbook -- which either clears away the ideological content and works more like the seminar room or offers a critical approach that draws on many different worldviews (or both) -- is just on the horizon...

anti-mankiw links; or, education and income inequality -- in which direction does the causal relationship go?

2011-12-14T09:00:00.000-05:00

In this article from a few days ago, Mankiw links to a post which suggests that increased education, particularly graduate school training, is a way of lessening income inequality in the U.S.

How does Greg see the relationship between education and income distribution? For him, increased opportunity, fostered through more education, leads to gains in an individual's productive potential. This does not necessarily imply, for him, that education will automatically lead to gains in income -- just that the potential for gains will be increased. This view is reflected in this article from his blog.

But what if the causal mechanism actually goes the other way -- i.e., from economic backgrounds and economic inequality to human capital growth? That is the story behind this Crooked Timber article and the associated New York Times article it quotes. A collection of other works questioning the role of education as an engine for social mobility can be found here, at the Legal History Blog.

When "class matters" to human capital accumulation, we are, all of a sudden, in very different territory -- not just because financial resources become important -- but because of the disproportionate impact the rich have on democratic institutions (an argument which, we believe if push came to shove, Mankiw would not disagree with).

But, thankfully, it is not unfamiliar territory. As education theorists have known for decades, economic elites have a disproportionate impact on the educational system in terms of funding and also in terms of influence. A classic in this line of literature is Bowles and Gintis' Schooling in Capitalist America, which argued that classrooms operate as training grounds for an obedient and productive workforce. The Bowles-Gintis theory of human capital seems to be supported by more recent discussions on the importance, or lack thereof, of creativity in the classroom (via MarginalRevolution). Though Tabarrok is a libertarian, we are certain he would agree with a corollary of the argument advanced in his article that educational policy (influenced by elites with political power) promotes a docile student body.

In summary, there seems to be two main ways in which one can view education and the "human capital" question. One may view education as a source of increased opportunity for a productive workforce. On the other hand, one may think that the problem lies in economic inequality and its egregious influence on educational institutions -- which means that more education will not address the problems of inequality in society and that it may in fact promote such problems. Let us not forget that there is, historically or cross-sectionally, no unidirectional relationship between the average education of a society and economic inequality!

We at Anti-Mankiw believe that more attention should be placed on this latter issue, given that there is more convincing evidence of that thesis.

rodrik on occupy ec 10

2011-12-12T17:56:00.000-05:00

Responding to the issues surrounding the Ec 10 walkout, highly acclaimed development economist Dani Rodrik weighs in on the particular question of the ideological content of mainstream economics here.

We at Anti-Mankiw are glad to see the debate moving past the difficult-to-support claim that mainstream economics is not political, or that Mankiw's ideology is "not at all obvious". As we tried to emphasize in a previous article, a key sign of an ideological approach, especially in economics, is when space is not opened up to a critical analysis of the economy.

We are hoping that Mankiw can begin to address the most important question behind the walkout, namely, why any group of students would choose to walk out on a course that has (in theory) so much potential for enriching discourse on the economy. Thankfully, Rodrik suggests to us an entrypoint. His premise is the vast set of policy proposals often invoked in economic theory. As he states succinctly here:

Indeed, though you may be excused for skepticism if you have not immersed yourself in years of advanced study in economics, coursework in a typical economics doctoral program produces a bewildering variety of policy prescriptions depending on the specific context. Some of the frameworks economists use to analyze the world favor free markets, while others don’t. In fact, much economic research is devoted to understanding how government intervention can improve economic performance. And non-economic motives and socially cooperative behavior are increasingly part of what economists study.

It is not clear to us how Mankiw's particular assumption set -- i.e., his 10 principles -- makes him immune to Rodrik's point. Aren't they just another assumption set, chosen by a professor with certain political aims? The weakness in Mankiw's approach is in the level of critical analysis that takes place in discussing economics. And why should introductory students at Harvard be spared of learning about the tools necessary for critique? Rodrik continues:

Now let the reporter go undercover as a student in the professor’s advanced graduate seminar on international trade theory. Let him pose the same question: Is free trade good? I doubt that the answer will come as quickly and be as succinct this time around. In fact, the professor is likely to be stymied by the question. “What do you mean by ‘good?’” he will ask. “And good for whom?”

In other words, economic policy proposals are much more nuanced than Mankiw seems to present. (A similar argument could easily be made for recent economics work on minimum wages.) And if we were to add such nuance, this does not necessarily make things to difficult to grasp. At UMass, we ask these kinds of questions to our undergraduates: we ask them how different efficiency criteria might change ones policy proposal, and we question the foundations of a hedonistic approach to economic theory. While such discussions admittedly require sources outside of the standard textbook, there is no need to go "too far" for a solid discussion of these issues. They are definitely in the reach of first year students.

We'll let Rodrik have the last word here:

Applied appropriately and with a healthy dose of common sense, economics would have prepared us for the financial crisis and pointed us in the right direction to fix what caused it. But the economics we need is of the “seminar room” variety, not the “rule-of-thumb” kind. It is an economics that recognizes its limitations and knows that the right message depends on the context.

That's right. Contrary to what Mankiw might say, there is much that students can learn about the financial crisis which would come from a different approach to introductory economics. Let's not speak so condescendingly of them!

anti-mankiw links; or, the dangers of technocracy

2011-12-07T21:30:00.000-05:00

On his blog and in his New York Times articles, N. Gregory Mankiw has slowly but carefully advanced a position which is critical of fiscal expansion. He has given a variety of reasons for his position. These include: fiscal responsibility provides more certainty for investors in determining the future potential of economic growth; as well as observing that the short-sighted character of most politicians leads them to underestimate how difficult an unbalanced budget can be to get out of in the long run.

In presenting these views to the public (i.e. in terms of his rhetoric), Mankiw has often said that he's demonstrating a centrist view of the issue -- evidenced, for example, by his signature on the Simpson-Bowles plan which garnered the support of people on the left and right. Deficit reduction is just simple economics, according to him, because we need investors to stay confident in the strength of our economy.

But deficit reduction is not that simple and focusing on it during a recession might not be the best option. Indeed, the argument that deficit reduction sustains confidence does not hold up. The correct argument for deficit reduction actually seems to be something a bit different: namely, that it can potentially reign in overzealous spending at a time when the economy can afford to do so. That is the gist behind this report by Arjun Jayadev and Mike Konczal entitled "The Boom, not the Slump". In that article (which was referenced in a blog post by Paul Krugman) they work through a few case studies which analyze the timing of austerity measures vis-a-vis movement in some of the economy's broad indicators to show that the case for austerity is weak. And on the other hand, as the Great Depression and World War II showed us, the standard argument for deficit spending in the case of recession has much stronger empirical support.

Still, even when Mankiw's "confidence fairy" argument falls, can he rely on a sound logical footing for his argument? The Jayadev and Konczal paper suggests at first glance that he can't. That is to say, the "sound" economics of Mankiw is really just ideology dressed up as science. In this interesting Monthly Review piece, Marcello Musto applies that exact idea to Europe. Simply put, technocratic discourse is sometimes laden with violence against anyone willing to speak out against the "science" of economic thinking. The result, at least in Europe, is one of the most acute forms of class warfare.

As Musto himself puts it:

The separation between economics and politics that differentiates capitalism from previous modes of production has reached its highest point. Economics not only dominates politics, setting its agenda and shaping its decisions, but lies outside its jurisdiction and democratic control -- to the point where a change of government no longer changes the direction of economic and social policy.

Introductory economics should start off with a very simple idea: be immediately distrustful of anyone you see (especially elites) presenting the "consensus" view within the economics profession as the "right" policy platform. And, indeed, this is the type of "apolitical" discourse that can end up being the most lethal kind for workers or other groups with less power in the economy.

Mankiw on the Consensus View Within Economics

2011-12-01T18:00:00.000-05:00

Mankiw often likes to tout the view that there is vast agreement in the economics profession over most of the major economic issues. In chapter 2 of his textbook, for example, he argues that while most economists differ on normative claims in economics (i.e., what ought to happen), there is widespread agreement about its positive claims (i.e., what actually happens). He often cites various polls of economists in support of his argument. His most recent cite is here. Another one here. Another one here.... It's almost as if he's not only trying to convince the public that economists largely agree on everything; he's trying to convince himself.

There are, however, a few problems with how his argument is made.

1. It's easy, though misleading, to cite sentence-long themes framed in a specific way and obtain consensus - it's much harder to dig into the details and find the same level of agreement. For example, the statement "If the federal budget is to be balanced, it should be done over the business cycle rather than yearly" might get 85% support among polled economists, but one wonders whether, if the question were asked "how" or via "what mechanism" etc., the agreement would be drastically reduced. This piece by Arindrajit Dube leads us to reflect on the idea that if the survey questions were framed differently or according to greater detail, they might reflect a growing consensus within economics that minimum wages do not necessarily have a significantly negative impact on employment. Other examples abound.

2. It's easy to get consensus if you only ask people who agree with you. I'm not suggesting that no members of the AEA or other academic economists polled have any heterodox inclinations (for example John Kenneth Galbraith was actually president of the AEA in 1972), but when the vast majority of economics departments and its institutions are run by and for mainstream economics, and when heterodox economists are so marginalized from the profession that they may not even be a part of mainstream professional institutions, you are bound to get the mainstream response. All you've really proven is that on some things there exists agreement among mainstream academic economists only. Additionally, if you only ask American economists, the skew is even greater because the United States has some of the least academic support for heterodox thought. A good example of this fact is the story of how a whole heterodox department is forced to close its doors. Expand this to business economists and financial economics experts who may not call themselves 'academic economists' but who, nevertheless, are prominently featured in policy circles and mainstream media outlets, and the skew could get even wider.

3. Perhaps the most important point is that agreement does not make you right. When groupthink is set as a priority above seeking the truth, that in and of itself suggests there is a fundamental problem within the economic profession. And that, at the end of the day, is the direction Mankiw would have mainstream economics continue to travel - a conglomeration of brainwashed groupthinkers who close their eyes to any alternative dialog that might challenge their worldview.

For whom exactly is inequality good?

2011-11-29T19:30:00.020-05:00

According to a clip from Richard Epstein, inequality benefits everyone. His appearance on PBS, linked by Mankiw’s blog, gives the standard free-market trickle-down argument about income inequality. According to Epstein, when 1% of the people own ⅓ of the wealth, it gives the rest of us poor 99%'ers incentive to work hard, innovate, and strive for success, in the end creating an even bigger overall “pie” to distribute. Unequal distribution makes everyone is better off, so we should stop complaining about the haves and have-nots. But what is missing in Epstein’s rosy free-market idealist picture about the merits of inequality?

Decline of Real Wages

Epstein’s argument that all incomes have risen under neoliberal capitalism is wrong. Real wage data suggests that in fact real wages have stagnated over the last several decades, despite substantial increases in productivity and wealth. While the pie may indeed be bigger, certainly not everyone is better off. Further, the segment of the population most stricken by inequality and poverty are children and the elderly, who may be even worse off than originally estimated.

Importance of Relative Income

Behavioral economists have been good at showing that what matters is not the absolute level of income, but rather how we earn relative to others. If more folks are falling at the bottom end of the income distribution, with lower and lower relative standing, then how are we all better off? In fact, some very influential behavioral economists from Mankiw's own institution and down the road at MIT, Michael Norton and Dan Ariely, have shown that most citizens would prefer a more equal society.

Political Power

It’s no news that income inequality undermines democracy. With resources concentrated at the top, some portions of the population can buy their way into political power and create major barriers to entry into elite circles. Epstein however idealizes perfect mobility in an unequal society. Even the Freakonomics blog was able to explain this point a while back, quoting Daron Acemoglu:

"First, people’s well-being may directly depend on inequality, for example, because they view a highly unequal society as unfair or because the utility loss due to low status of the have-nots may be greater than the utility gain due to the higher status of the haves. Second and more importantly, equality of opportunity may be harder to achieve in an unequal society … Third and most importantly, inequality impacts politics. Economic power tends to beget political power even in democratic and pluralistic societies. "

give thanks to capitalism

2011-11-24T09:30:00.000-05:00

An "In the News" excerpt in chapter 7 of Mankiw's Principles of Economics (4e) is titled "The Miracle of the Market" and begins with the following proposition:

An opinion columnist suggests that the next time you sit down for Thanksgiving dinner, you should give thanks not only for the turkey on your plate but also for the economic system in which you live.

The topic is Thanksgiving dinner and the argument is that we owe our Thanksgiving turkey to the division of labor, supply chains, and the pursuit of private gains. Of course, the article -- an opinion piece from the Boston Globe (does that count as "In the News" to you?) -- is meant to support the "argument" laid out over the previous 13 pages that "the price of turkey at the supermarket is fair", from a social efficiency standpoint, as long as free markets are the means by which scarce resources are allocated. Central planning would require vast amounts of information and time to do what a free market economy does completely on its own.

Fair point about central planning -- but why bring it up in the first place? Why does the author's argument about the coordinating miracle of the free market have to be compared to the extreme opposite of a completely centrally planned economy?

While we can never be certain of the author's intentions, let us offer a response: perhaps elements of a planned economy trickle into the author's story in ways overlooked or simply ignored by him. In other words, it appears to us as though the tactical use of attacking the "central planning" argument is to divert attention from more important and empirically relevant matters, such as the following:

Who determines the price of gasoline used by the trucks delivering the turkeys to the store? Oil cartels play an important role in determining prices at the pump.

Who coordinated work at the factories which produce the feed and raise the turkeys? Most likely, these tasks were performed by a manager and other centralized authority figures.

Who regulated the quality of the Turkeys or facilitated their transportation? Government laws and statutes were necessary for these things.

Upon reflection, it seems that there does exist an essential economic planning element to your Thanksgiving dinner. Imperfectly competitive markets and the organization of economic activity which takes place in the firm are important examples of cases in which economic agents act collectively to plan and alter economic outcomes.

So this year, give thanks to capitalist social relations for the meal on your plate. While Mankiw has tried time and again to assert the universality of the "free market" model and its relationship to Thanksgiving, a simple look around at how economies actually function suggests otherwise.

mankiw's bias revealed

2011-11-20T12:00:00.002-05:00

Greg Mankiw recently woke up extra early to do an interview with the Fox News morning show Fox and Friends and posted the interview on his blog. The interview focused on the recent walkout that took place during his EC 10: Principles of Economics class. Both the show's host and Mankiw disputed the claims that the class was biased by indicating that the class was "mainstream", not "too conservative", and resembles the principles of economics classes that are taught at most college classes nation wide.

But those claims are precisely what makes Mankiw's class and textbooks biased: namely, the refusal to step out of the mainstream and look critically at what is being taught. Those who claim that Mankiw's approach is bias aren't simply saying that what is being said is too conservative and that it needs to be more liberal. The problem with Mankiw's approach lies in the limitations of the assumptions in the theory being discussed, methodological issues, and in the failure to recognize that there are alternative approaches to neoclassical economics. To refuse to do so is a refusal to provide his students with the education that they expect and deserve.

The purpose of a liberal education is to expose students to a plurality of ideas and modes of thought, and from the interview it seems like the Fox News anchor and Greg Mankiw would agree. But, Mankiw's supposed dedication to liberal education contradicts his approach to teaching economics. By teaching an exclusively mainstream approach to economics he fails to provide his students with a wide ranging and critical account of economics failing the students the education they were promised when they entered into academia.

It is not simply that he is failing to provide his students with the liberal education that they are promised, but that by doing so he is failing the broader project that is the development of economic thought. Throughout the history of economic thought most if not all advancement in theory came from people drawing from a plurality of ideas -- not by simply staying within the mainstream framework. By limiting the ideological scope of his class he is limiting the potential advancement of his field.

Anti-Mankiw's Favorite Textbooks and Teaching Methods

2011-11-15T20:00:00.006-05:00

Back in 2009, Mankiw fielded a question from an instructor who wanted to know whether the teaching of Principles of Economics would change in the wake of the financial crisis. We at Anti-Mankiw strongly disagree with Mankiw's reply. Mankiw's argument rests on the assumption that the building blocks of mainstream analysis are necessary and sufficient for understanding such an unusual event as the crisis. But was he right to defend mainstream economics on such grounds?

Let's go back to the basics. A common definition for "mainstream" is:

The ideas, attitudes, or activities that are regarded as normal or conventional; the dominant trend in opinion

It seems that, contrary to Mankiw's argument about the utility of the building blocks, mainstream economics is more appropriately defended as a convention or "common language". This poses a slight problem -- for understanding the "power" and prevalence of mainstream economic analysis, certainly -- but also for thinking about how to take a different approach in the classroom. As the reader might expect from this definition, teaching parts of economic thought considered outside the mainstream, ie. ideas that may be regarded as abnormal or unconventional or not the dominant opinion, can be a daunting task, particularly when attempted at the 'principles' level of economics.

Many principles courses, micro or macro, often provide perverse incentives to teach - and to learn - solely mainstream material. Consider the teacher's perspective. He or she would like to do what they think is best for their students by teaching broadly and discussing economic history and different schools of thought and how their assumptions may be different, etc. Alas, textbooks to teach non-mainstream ideas at an introductory level are not very visible. Mankiw of course has the largest market share of introductory textbooks and teachers often receive free complimentary versions for review not just from Mankiw but from a swath of other mainstream textbook authors - and department heads often encourage the use of these mainstream texts.

But it's more than encouragement. The final exam in many principles courses, partly due to their size, are departmental multiple choice exams. This means that the well-meaning pluralist teacher now has to dedicate most of his or her time teaching to the (mainstream) test or else risk students' grades suffering the consequences. Because teachers are in large part evaluated based on their trending performance every semester relative to other teachers, the incentive is large to stick to the mainstream text throughout the semester.

But what about from the student's perspective? Much like the teacher, their performance matters too. Firstly, if they are in an honors program they often have to maintain a C or above, and even students who want to learn the heterodox topics a teacher may teach, does so at risk of a lower grade. Here again, the final exam, and indeed perhaps other quizzes and homework in the case where the teacher may not cover pluralist topics for reasons stated above, are often geared toward the mainstream, and since study time is a finite resource (of which hopefully all economists can agree that there are only 24 hours in a day), the student has the choice to focus effort on mainstream study, or shift some of that precious time to studying heterodox material that may not benefit their grade. The institution is set up in such a way so that the student has incentive to choose the former.

Additionally, most students who take introductory econ courses are not economics majors. Psychology, business, accounting, sociology, and political science majors take the course as well. A more pluralist economics discourse would account for their own major's contributions to economics, which is often ignored or brushed aside in mainstream texts. Thus, when such a student encounters their mainstream economics course, while try as they may to stay engaged, they are often found napping as the teacher goes over the concepts of utility maximization or preference ordering, etc. This does not help anyone - student, teacher, or department.

Nevertheless, all is not lost. There are some textbooks that do exist that try to incorporate pluralist economics at an introductory or intermediate level. One of the best set of resources is courtesy Tufts University's Global Development and Environment Institute. They have recently (2008) published both micro and macro textbooks that speak not only to mainstream concepts but also to issues of environmental economics, serious discussion at both micro and macro level of income inequality, institutional and historical trends in the US macro-economy, non-mainstream discussion of international trade, and alternative measures of economic well-being and growth. Best of all, their supplemental materials and significant portions of their texts are freely available on their website. And, the published textbooks are affordable at only $50 each. Another great intro text, the Economics Anti-Textbook serves to pick apart the assumption of mainstream economic theory - exposing what are often taught as simplifying assumptions for what they really are - critical assumptions. Another great macro text by Steve Cohn, Macroeconomics: A Critical Approach, serves to discuss mainstream theory but expands the discussion to how financial markets really work, financial instability, Marxist contributions to economics, and so on.

A more complete list of texts and pluralist publications in general can be found here. While there are certainly institutional barriers to teaching a more pluralist kind of economics, and while there are certainly financial and other barriers to assigning multiple texts to students, using materials or pieces from some of these texts can at a minimum, enhance a student's understanding of economics in its many schools of thought.

Beyond textbooks, there is a plethora of non-conventional tools that a pluralist teacher could use to engage students. Many economics teachers invite other professors within economics as guest lecturers. Some teachers may even branch out of economics and occasionally invite someone in a Business Finance field to lead a group discussion. But we would venture to guess few mainstream teachers really embrace plurality enough to invite, for example, an I/O psychologist to discuss motivations for decision making in labor markets that may not be deemed to be 'rational'.

There are other tools a teacher who wants to expand the usual economics dialog can utilize. How about adding some behavioral economics to the classroom by running the occasional group 'experiment'? One of the best creators of such experiments is Prof. Denise Hazlett of Whitman College: experiments that show how the normal loan-able funds model can breakdown in times of economic and inflation uncertainty, or how investment coordination failures can result in large recessions.

Finally, we suggest mixing the typical lecture up with topics that go beyond the normal mainstream discussion by using a good podcast (radio is not dead!) or perhaps a YouTube video. These mediums are particularly helpful at engaging a student - especially students from outside the economics department.

anti-mankiw links

2011-11-12T17:00:00.000-05:00

1. If Greg Mankiw wanted to inform his readers about the "Profile of OWS", he might have gone for something that was a little less focused on the profile of one individual, and instead, posted this excellent analysis of the WeAreThe99% Tumblr by Mike Konczal. Konczal's article actually gives a breakdown of the different platforms the Occupiers take and then discusses what that means for understanding the overall shape of their politics. An excellent "profiling" if we have ever seen one.

The thing is, the article in the Nation to which Mankiw linked was not even intended to be a full profile of OWS per se. The article, entitled "The Audacity of OWS", about the different types of groups which make up OWS and how they are often going against the "grain" in their respective communities in order to speak up against inequality and its adverse effects on democratic process. In the end, the article is a celebration of their tactics and resilience in the face of all sorts of outside pressures.

What was Mankiw's intention in linking to the piece in the first place? Does he find it funny that the (now unemployed) teacher, who probably decided to get a Master's degree to increase his earnings potential, ended up focusing on puppetry? While it is of course difficult to argue where precisely Mankiw stands on any particular issue when all he does is link to a post, his past behavior gives us a pretty good idea of how bad his blog "reporting" skills are and what his attempted message is. We can only infer what he really meant, but one thing is absolutely certain: his attempt to give us an overview of who the Occupiers really are ended in abysmal failure.

2. We think that this article by Barry Eichengreen, posted by Mankiw the other day, is an excellent discussion of some of the dangers facing the European economy as Greece searches for a way out of its fiscal troubles with a new Prime Minister and as Italy averts a crash itself. But one crucial issue, often skirted by mainstream media, is the impact the crisis is having on the actual people living in these countries.

How will the European "dark days" affect working people? Louka T. Katseli, writing for TripleCrisis, observes how the huge pay cuts taken by public workers across Europe are affecting perceptions of the viability of a European "social democratic" model that is increasingly favoring the financial sector. We believe that Katseli has written an excellent essay on these issues in a way that brings to light the impact of austerity measures on the government's ability to supply people with, for example, basic health care and social security checks.

Deus ex machina in economics

2011-11-10T09:15:00.000-05:00

Deus ex machina refers to a plot device in plays or stories, where a sudden solution emerges seemingly out of the sky to solve particularly perplexing problem in the story’s events. For the economic story and unemployment problem, the “machina” part becomes quite literal. When in doubt, blame machines and technology.

Back in the roaring 2000s, Mankiw posted this brief explanation of technology and inequality:

“1. There is little doubt that U.S. income inequality has been increasing for the past three decades. (The trend in world inequality is very different.) Most economists who study the topic attribute the trend primarily to changes in technology that reward skilled workers relative to unskilled workers. Education and other skills are more valuable now than they were in the past.”

That certainly fits in swimmingly with the standard neoclassical recipe- preferences, factor endowments, and technology- but should we really be blaming our income inequality and high unemployment on schools and machines? Exactly how does this work?

On Mankiw’s blog, he recently added some comments on his “it’s education, stupid” stance mentioned in our last post, with some words from economist Erik Brynjolfsson. Stagnation via technology is the premise of a new e-book by Brynjolfsson and Andrew McAfee entitled “Race Against the Machine”. The authors claim that the digital age, with increasingly sophisticated computer usage and expansion in communications tools, has had a distinctly different effect on the economy than other periods of technical change. Instead of creating more jobs than it destroys, the digital form of mechanization has given us a net decrease in jobs by taking over much of the work. Maybe more importantly, the benefits of increased productivity are more likely to be unevenly distributed in favor of those “superstars” which the technology favors.

While Brynjolfsson and McAffee still pick focus on workers' skills not keeping pace with technology, the second part of their premise actually offers a much more in depth story as to exactly why technology may enhance inequality. Turns out, the authors claim that our social institutions that govern things like distribution of wealth have not kept up with these rapid changes in technology. Although the authors pick up the "blame the victim" rhetoric, I would argue against their claim that workers' skills are not keeping up with technical change, since of course, educational institutions and human capital investment are socially determined just like any other social institution. That means that ameliorating supposed skills mismatch through education doesn't work unless you radically alter the educational system itself, to something equitable and attainable. (In fact, education too may exacerbate inequality.)

Building on part of their argument then, it’s not education, technology, or inefficient workers; it’s inefficient and outdated institutions that have led to the divergence in income levels over the past several decades.

The most introductory and famous example of sticky, inefficient institutions can be found in Paul David’s famous paper noting the presence of inefficient institutions, showing how the standard QWERTY keyboard layout caught on despite being slower than other options. So maybe institutionalized inequality, perpetuated in part by the logic and rhetoric of mainstream neoclassical economics, is a part of our inefficient and clunky distribution system that allows technology to exacerbate wealth and income inequality.

In the story of unemployment then, machines and even education can no longer be our economic scapegoats. Instead, we should recognize it’s the social institutions that constitute our economy that should be of real concern. Let's start going to the root of the problem.

Want to join the 1%? Enroll now!

2011-11-08T09:26:00.003-05:00

In a recent blog post, Greg Mankiw posits that education is the key to closing the income gap, allowing upward mobility for any regular 99%er to join the elite 1%. According to Mankiw, working hard in school improves the odds that an individual is able to join the 1% or at least significantly increase their earnings potential. Education then closes the income gap and smoothes out inequality.

But the question arises: if college enrollment has been steadily increasing over the years, why do we still have the highest income inequality in decades?

Let’s give a closer look at Mankiw’s claim about the great equalizer that is college. In this claim, he fails to acknowledge that access to education is often determined by the income of a potential college freshman’s family. Simply put, Mankiw fails to acknowledge that barriers to access exist.

A 2007 report by UCLA on entering freshman found that the median income of the families of was 60% higher than the national average in 2005. Further, at institutions that may appear to increase the probability of joining the upper-crust 1%, namely Ivy League institutions such as Princeton, Harvard, and Yale, evidence shows the acceptance of people with incomes in the bottom 50^th percentile is exceptionally low around 10-12%. A recent Georgetown study reported on by the New York Times that within the 2010 freshman class, drawing from “193 of the country’s most selective colleges”, only 15% of the freshman class came from the bottom 50% of the income distribution and 67% came from the top 25% of the income distribution.

With those reports in mind, it becomes quite clear that for Mankiw’s claim is unsubstantiated. The idea that higher education is a means towards great income equality is solely dependent on having no barriers to access for all levels of income and socio-economic groups. Unfortunately, that is simply not the case. Unless the American educational system is drastically restructured to provide adequate college preparation across all income levels and proportionally accept students from the bottom percentiles it is likely that the distribution of higher education and wealth with remain significantly skewed in favor of the 1% and the already wealthy.

A Response to Mankiw and His Defenders

2011-11-06T17:18:00.000-05:00

Mankiw seems genuinely concerned that his protesting students ironically had to miss his lecture on income inequality. It is important to give Mankiw and his EC 10 text-of-choice (presumably his own “Principles of Economics 6e”) the credit deserved: he mentions income inequality and says it may be a problem depending on one’s political or philosophical persuasion. Unfortunately, that is about the extent of the credit one can extend.

We take two broad issues with Mankiw’s NPR interview response to his students’ walkout:

Mankiw’s coverage of income inequality is inadequate for an economics course(s)
Mankiw misses the broader point that he and his textbooks do not promote plurality of discussion on a wide range of topics beyond income inequality and its relation to economic activity

It’s clear what Mankiw’s lecture on income inequality is all about by looking at his official lecture notes. He spends some time comparing the poor and the rich in the United States and across countries, and then quickly moves to discussing problems with measurement of income inequality. And here’s where the bias kicks into overdrive. According to Mankiw, measures of income inequality are drastically biased upward due to 4 things:

The values of in-kind transfers are often ignored when measuring inequality. The problem is that that is not necessarily true. For example, the US Census, in its measures of inequality began valuing in-kind government transfer programs back in 1982.
People can borrow and save, therefore ‘smoothing out’ their incomes over time. The problem with that is that poor persons, almost by definition, have little means of borrowing on credit as they often lack collateral. Second, they have little ability to save since living closer to the poverty line means dedicating just about all of income to subsistence.
If what we really care about measuring is inequality of living standards, then one should compare wealth or permanent income, not transitory income levels. Again, that is all fine and good except for the statistic is unlikely to improve for poor persons who have limited resources.
Income measures fail to account for the fact that the poor have opportunities to lift themselves up. Unfortunately, Mankiw fails to mention any barriers to doing so that exist in our society, political power, institutional limitations, or otherwise.

The rest of Mankiw’s discussion of the income distribution can basically be summed up in 1 sentence:

The problem of income inequality is important, but something more for politicians and philosophers to further a discussion on after comparing the cost of improving income equality, at the expense of economic efficiency.

There is no discussion as to how economics (and students of the discipline) can contribute to the discussion other than as a distant, silent observer. That is likely why it is nearly the last chapter in this microeconomics textbook – for Mankiw the discussion is an afterthought in economics, as opposed to an integral part of it – so it’s ok if instructors that use his textbook skip the chapter entirely. Perhaps more importantly, Mankiw’s chapter on income inequality is, to the degree it is discussed, entirely from a microeconomic perspective. He completely ignores the macroeconomic links between the income distribution and wages, profits, and economic growth. In his GDP chapter (the macroeconomic measure of living standards) he fails to discuss other measures of income inequality that many nations use because of GDP’s inadequacies (like the Human Development Index, or the Genuine Progress Indicator) which largely stem from the lumping profit (rich) and wages (middle class / poor) into one aggregated measure of supposed well-being.

All this said, it is disappointing that the protesting Harvard students focus so much of their attention on income inequality and fail to really focus in on the broader problem- that Mankiw and his textbooks perpetuate an ahistorical, assumption laden, non-complex market based dialog, often times ignoring other schools of thought that may have something interesting or useful to say on a topic.

Behavioral economics often points out how unrealistic some of the assumptions of textbook economics truly are, and in fact perfectly rational economic actors are more or less sociopathic. Some heterodox schools of economics discuss how income inequality is directly related to boom/bust cycles of capitalism and therefore are not just explained by a human capital premium. Environmental economics also discusses the relationship between economic growth, business cycles and environmental degradation beyond simply discussing market-based tax solutions. Finally, Mankiw largely ignores the relationship that politics and economics have – and specifically the relationship between political power and economic power of which political scientists are all too familiar with understanding. Were he to truly recognize the issue, he might have an answer for one of the biggest concerns of the Occupy Wall Street movement: why, essentially, rich people were given preferential financial/political treatment over poor people when it was the rich people who were in large part responsible for the recent economic calamity that directly hurt the poor.

At the end of the day according to EC 10, economics is about being able to explain only a small part of individual and national choice behavior – the unrealistic perfectly ‘rational’ part - and applying only one kind of solution – a kind of economic bandage (taxes etc.), in the rare instance choice behavior isn’t so perfect or in equilibrium. For Mankiw, economics can be boiled down to brief, vague principles. Students around the globe are brainwashed with this limited kind of homo-economicus thinking that would make Adam Smith roll over in his grave. Luckily, some students are waking up from the haze.

-anti-mankiw

This is why we are Anti-Mankiw

2011-11-04T19:30:00.001-04:00

Students at Harvard University on Tuesday, November 1st walked out of Professor N. Gregory Mankiw's Ec 10, "Principles of Economics" course, for two main reasons.

First, to declare their solidarity with the Occupy Wall Street Movement, and indeed, occupy movements currently happening all across the world.

Second, to protest the specific role played by Mankiw's course in perpetuating inequalities of wealth and power, which have plagued American (and world) capitalism for decades, if not centuries.

As the Harvard students put it in their open letter to Professor Mankiw, they are concerned with the political bias inherent in Mankiw's text, as well as how it "affects students, the University, and our greater society."

But what does it really mean to say that Mankiw, his class, and his textbook are responsible for such things?

The students state in the letter how Mankiw rarely includes a discussion of primary sources and often slants toward the classical model of political economy, expounded most famously by Adam Smith. This bias stands to the detriment of other important schools of economic thought such as Keynesianism. But the problem with his course goes a bit deeper than that. While Mankiw might argue that his New Keynesian approach to macroeconomics combines the best of both Keynesian analyses of the short run and classical views of the long run, the fact is that both Adam Smith and John Maynard Keynes understood that the economic laws of the market are not immutable "principles" of society -- a point which, unfortunately, leaves Mankiw less in the camp of either of these great thinkers, and more in the realm of political ideologues and pundits.

That is to say, the self-interested agent who "faces tradeoffs" and "responds to economic incentives", as Mankiw's "10 principles of economics" assert, describes but a very small part of our daily lives. Whether you're with your friends, or at home with your family, values of cooperation, love, friendship define your day-to-day interactions. Even political power is an important concept, not given even a single mention in Mankiw's entire text! The idea that those who are wealthy might institute political power over the economic system is an idea that, indeed, goes back to Adam Smith himself. Choosing not to discuss such an economically-relevant and important topic demonstrates a severe lack of intellectual and moral integrity on the part of Mankiw and his textbook. In other words, the whole market-centric approach of Mankiw's course is fundamentally at odds with how the world works in reality.

So given that Mankiw’s course, textbook, blog, and ideology are at odds with the actual workings of social and economic life, and even help to perpetuate our societal and economic problems through producing this image of the individual as completely oriented toward market values and ideas, it’s probably time to expand the economic conversation towards more pluralism and away from hegemonic, ideologue set-in-stone “principles”. Indeed, this is why this blog is Anti Mankiw.